This brief overview cannot capture the full complexity of the U.S.-China rivalry, which could easily fill a book. However, we can highlight some of the latest developments in each country’s approach.

In recent months, the U.S. and China have adopted distinct strategies in their escalating competition for technological leadership. Both governments are ramping up their responses, but their methods diverge sharply, creating what could be described as a “not-so-cold war” with significant implications for companies on both sides.

Entity-listed companies and their suppliers may bear the brunt of this economic friction. For example, U.S. regulators recently fined GlobalFoundries for allegedly violating trade restrictions by supplying components to a subsidiary of SMIC, a leading Chinese chipmaker. Furthermore, on Oct. 28, the U.S. Treasury Department finalized regulations to restrict American investment in certain advanced technology sectors within China starting the  Jan. 2, 2025.China has been actively reforming its capital markets, particularly focusing on the Science and Technology Innovation Board (STAR) Market. Key initiatives from the China Securities Regulatory Commission (CSRC), such as the “Eight Measures for Deepening the Reform of the STAR Market to Serve Technological Innovation and the Development of New Productive Forces,” released in June, and the “Six Merger and Acquisition Guidelines” introduced in September, aim to streamline merger and acquisition processes. These reforms underscore China’s commitment to nurturing and supporting high-growth, innovative industries.China’s goal is to foster homegrown tech champions and encourage its CEOs to embrace high-stakes competition (and get back in the gladiator rings again). Conversely, the U.S. is steering its investors toward other high-growth markets in an effort to curb China’s advancements in AI and related fields.How might this impact various investors? With American investors officially retreating from parts of China’s deep tech sector, space opens up for others to step in. Who are the obvious replacements, and which less anticipated players might leverage this opportunity in a less crowded field?“U.S. investments must not be used to help countries of concern develop their military, intelligence, and cyber capabilities,” said Paul Rosen, assistant treasury secretary for Investment Security. He emphasized that such investments involve more than financial support: they offer “intangible benefits,” such as managerial guidance, assistance in recruiting top talent and access to additional funding sources.The U.S. Treasury Department’s latest regulations will prohibit U.S.-based companies, citizens, and permanent residents from engaging in transactions related to semiconductors, AI, and quantum computing within China. This initiative follows an executive order signed by President Joe Biden in August aimed at curbing the flow of U.S. capital and expertise that could strengthen China’s military and intelligence capacities.The regulations specifically target investments that could accelerate China’s development of technologies essential for military, cybersecurity, surveillance and intelligence purposes. For example, U.S. investment banks are now barred from acquiring equity stakes in Chinese firms specializing in advanced semiconductor technology.Beyond outright prohibitions, the new rules require U.S. investors to notify the Treasury Department of transactions involving certain less advanced technologies that could still present national security risks. Violators may face significant fines—up to $368,136 or twice the value of the prohibited transaction, whichever is higher. To enforce these regulations, the Treasury is creating an Office of Global Transactions to oversee compliance.

China’s CSRC

China recently revised its regulations to ease access for foreign strategic investments in Chinese listed companies. As of Nov. 1, the new rules extend eligibility beyond foreign institutions to include individual investors, aligning with China’s objective to attract a broader range of international capital.

Key changes include a reduction in minimum investment thresholds for foreign investors who do not intend to take control of the company. This adjustment lowers financial entry barriers, making it easier for investors to participate in the Chinese market without having an operational influence over the company.

Additionally, the updated regulations provide new avenues for foreign investors to acquire shares in Chinese listed companies. In addition to traditional methods like private placements (direct share issuance) and block trades (large-scale share transfers), foreign investors can now use tender offers—a process common in mergers and acquisitions that enables purchasing a substantial share of stock directly from existing shareholders.

Moreover, restrictions on shareholding ratios and lock-up periods have been eased. This added flexibility allows foreign investors to adjust their holdings with greater freedom and shortens the mandatory holding period before selling, which previously restricted the liquidity of foreign-held shares in China’s market.

These changes are designed to attract long-term foreign investments by fostering a more flexible and accessible environment for international capital. China seeks to bolster market stability and stimulate increased global interest in its financial markets, demonstrating a commitment to foreign partnerships despite ongoing global trade tensions.

Measures for deepening the reform of the STAR market

On June 19, China’s top securities regulator introduced new measures aimed at enhancing the STAR market to better support technological innovation and foster high-quality growth.

Since its launch in 2019, the STAR market has become a leading platform for “hard-tech” companies, with its popularity in the tech sector steadily increasing. The recent reforms, announced by the CSRC, aim to provide greater support for companies advancing in emerging industries, innovative business models and frontier technologies. Key updates include an improved IPO pricing mechanism to better reflect true market value.

Further initiatives focus on expanding financing options for STAR-listed companies, optimizing trading mechanisms, enhancing oversight to reduce market risks, and promoting mergers, acquisitions, and corporate restructuring. These measures highlight China’s commitment to strengthening the STAR market as a dynamic hub for technological advancement.

These updates underscore the significance of China’s STAR Market as a competitive landscape for tech-oriented investments, drawing heightened interest globally.

The six mergers and acquisitions guidelines

On Sept. 2024, the CSRC introduced the “Six Merger and Acquisition Guidelines” designed to transform M&A activity across strategic emerging industries. Although the guidelines apply broadly, their impact is especially notable in the semiconductor industry, where they are expected to spark a new wave of M&A activity in China’s capital markets. These guidelines aim to promote industrial consolidation and streamline M&A processes, accelerating growth in high-tech and future-focused sectors.

In industries like semiconductors, the simplified approval processes are anticipated to boost M&A activity, allowing companies to consolidate resources, scale operations and enhance their global competitiveness—key objectives of China’s innovation-driven development strategy.

Key policy changes:

Encouragement of Cross-Industry Mergers: Companies are now permitted to merge across sectors, promoting diversification and access to strategic assets, even if these assets are not immediately profitable.

Streamlined M&A Processes: Faster and more efficient approval procedures make it easier for companies to pursue acquisitions and achieve growth.

Boost to Industrial Consolidation: The policy emphasizes resource concentration in critical sectors, such as semiconductors, to enhance the global standing of Chinese companies.

Furthermore, these guidelines are expected to attract long-term investments by facilitating private equity and venture capital participation. The CSRC has underscored the importance of transparency and fair market value management, focusing on preventing illicit activities disguised as M&A.

Semiconductor-relate Chinese A-share market

China’s A-share market currently hosts over 218 semiconductor-related companies, primarily listed on the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE). These companies span a variety of segments, including semiconductor equipment, materials, testing and packaging, and supporting technologies like design and photonics.

A-shares are stocks of companies based in mainland China that trade on the SSE and SZSE. Historically, A-shares were restricted to Chinese citizens, with foreign access limited. Valued in Chinese renminbi (RMB), A-shares are a vital part of China’s financial markets, providing an essential capital source for domestic companies. For international investors, A-shares offer a unique opportunity to invest directly in China’s rapidly growing domestic economy, now the world’s second largest.

In the first three quarters of 2024, 13 of these 218 companies have already surpassed $1 billion in revenue year-to-date. This group includes leaders in equipment, materials, imaging sensors and optoelectronic components. The semiconductor sector’s strong performance reflects China’s strategic focus on technology growth and its increasing resilience against market fluctuations. The complete list is as follows:

Company Ticker Revenue FY23

(b RMB) Revenue FY23 (b USD)

Chinese name English name

中电港 CECport Technologies SHE: 001287 38,0 5,3

长电科技 JCET Group Co SHA: 600584 25,0 3,5

北方华创 NAURA Technology Group SHE: 002371 20,4 2,9

纳思达 Ninestar Corporation SHE: 002180 19,4 2,7

韦尔股份 Will Semiconductor SHA: 603501 18,9 2,7

通富微电 TongFu Microelectronics SHE: 002156 17,1 2,4

晶盛机电 JSG SHE: 300316 14,5 2,0

江波龙 Longsys Electronics SHE: 301308 13,3 1,9

三安光电 Sanan Optoelectronics SHA: 600703 11,9 1,7

深科技 Kaifa Technology SHE: 000021 10,9 1,5

华天科技 Huatian Technology SHE: 002185 10,5 1,5

士兰微 Silan Microelectronics SHA: 600460 8,2 1,1

华润微 CR Micro SHA: 688396 7,5 1,0

Furthermore, I have identified at least 10 companies whose year-to-date revenues in 2024 have already surpassed their total revenues from 2023, with one quarter still remaining. These companies are:

Company Ticker Revenue FY23

(b RMB) Revenue YTD24

(b RMB) Revenue 2024 YTD vs 2023 (%)

Chinese name English

name

德明利 TWSC SHE:001309 1,8 3,6 202%

拉普拉斯 Laplace SHA:688726 3,0 4,3 145%

思特威 SmartSens SHA:688213 2,9 4,2 146%

伯维存储 Biwin Storage SHA: 688525 3,6 5,0 140%

长川科技 Changchuan Technology SHE: 300604 1,8 2,5 143%

和林微纳 UIGreen SHA: 688661 0,3 0,4 131%

江波龙 Longsys Electronics SHE: 301308 10,1 13,3 131%

源杰科技 Yuanjie Semiconductor Technology SHA: 688498 0,1 0,2 124%

赛微微电 Sane Microelectronics SHA: 688325 0,2 0,3 112%

东田微 DOTI Micro Technology SHE: 301183 0,4 0,4 117%

Notably, Longsys Electronics is the only company appearing on both lists, with significant revenue growth exceeding the $1 billion threshold.

Final thoughts

The diverging strategies of the U.S. and China in market reforms and investment restrictions underscore their intense rivalry for technological dominance. While the U.S. is focused on limiting Chinese advancements in critical tech sectors through stringent investment restrictions, China is actively reforming its capital markets to attract a wider range of investors and strengthen its domestic tech ecosystem.

These moves create a shifting, complex landscape for global investors, presenting both challenges and new opportunities. Ultimately, these regulatory actions signal a transformative period, setting the stage for a new era in global tech leadership and financial strategy.

With President Trump’s recent election victory, China’s tech market may face additional pressures. Potential expansions to the entity list, along with the possibility of new tariffs, could intensify the challenges. This raises a pressing question: Who stands to lose more from these measures—U.S. or Chinese investors and companies?